Century Communities, Inc.

Welcome to Century Community's third quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this conference is being recorded. I will now turn the conference over to Tyler Langton, Senior Vice President of Investor Relations for Century Communities. Thank you. You may begin.

Good afternoon. Thank you for joining us today for Century Communities Earnings Conference Call from the third quarter 2023. Before the call begins, I'd like to remind everyone that certain statements made during this call may constitute forward-looking statements. These statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statements. Certain of these risks and uncertainties can be found under the heading risk factors in the company's latest 10-K as supplemented by our latest 10-Q and other SEC filings. We undertake no duty to update our forward-looking statements. Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Dale Francescan, Chairman and Co-Chief Executive Officer, Rob Francescan, Co-Chief Executive Officer and President, and David Messinger, Chief Financial Officer. Following today's prepared remarks, we will open up the line for questions. With that, I'll turn the call over to Dale.

Thank you, Tyler, and good afternoon, everyone. I want to start by saying that we are very pleased with our solid third quarter results, especially within the context of a challenging overall housing market. Despite rising interest rates, our sales activity performed in line with our expectations and typical seasonality, demonstrating the strong underlying demand that remains for affordable new homes. Our deliveries of 2,264 homes increased on a quarter-over-quarter basis and benefited from improved cycle times. Home sales revenues of $865 million grew by 6% over second quarter levels, with our average sales price gaining 4%. Our gross margins increased by 490 basis points sequentially to 24.6%, while our adjusted gross margins increased by 480 basis points to 25.8%. As a result, we delivered third quarter delivered earnings per share of $2.58, a 62% increase over second quarter 2023 levels. Turning to our sales activity, Our net new contracts in the third quarter totaled 2,149 homes, a 63% improvement over the level of sales activity that we saw in the third quarter 2022. We commented last quarter that we expected more typical seasonality to return this year, and we saw it play out in the third quarter, with our net orders declining 7% sequentially, roughly in line with the 6% quarter-over-quarter decline we saw in the third quarter of 2019. Our net orders in August and September both exceeded the levels we experienced in July, which we view as a positive trend given the continued increase in interest rates over the past several months. Looking out to the fourth quarter as a whole, if typical seasonality holds, we would expect our net orders to decline on a sequential basis. We are continuing to see good demand for affordable, entry-level homes across both our Century Communities and Century Complete brands and wanted to use this opportunity to go into a little more detail on the value that we see in our Century Complete business, which currently generates approximately 35% of our sales and deliveries. As we've discussed in the past, Century Complete targets entry-level customers with 100% of its deliveries within FHA limits and only acquires finished lots. It is a scalable business model which requires less capital investment and yields quicker asset turns. The increase in interest rates over the past year has also reinforced some additional advantages of the Century Complete brand. In the third quarter, Century Complete had an average sales price of $265,000, and the large public home builders generally don't build at this price point. Century Complete tends to compete more with existing homes and smaller private home builders, which puts us in a strong position. Existing home inventories remain depressed due to the lock-in effect, so there is less competition from the used home market. Smaller private new home builders tend to borrow from local and regional banks. Their borrowing costs are generally higher than ours, and we think the local and regional banks will likely reduce the amount of credit that they are willing to extend to the smaller private builders. As a result, we think Century Complete is in a strong position to capture additional market share in the years ahead. Turning back to Century as a whole, we continue to maintain our focus on building some of the most affordable new homes in the markets we serve. More than 90% of third quarter deliveries were from homes priced below FHA limits, which allows us to target more potential buyers in any given market. Additionally, 99% of our home deliveries this quarter were from spec bills, which enables us to better control our costs and allows our buyers to purchase quick move-in homes and lock in their mortgage rates for certainty of financing. Our cancellation rate was 16% in the third quarter, consistent with our year-to-date rate and well below an average cancellation rate in the low to mid 20% range in the years prior to COVID. We continue to believe that our cancellation rate is benefiting from buyers adjusting to the higher interest rate environment and our strategy of selling homes later in the construction cycle. In closing, we're encouraged by the improvement that we have seen over the past several quarters in our deliveries and gross margins. which are benefiting from reduced levels of incentives, improved cycle times, and lower direct costs. As expected and previously messaged, our deliveries have increased sequentially in each of the last two quarters. And as Dave will detail in his remarks, we expect our fourth quarter deliveries to increase over third quarter levels and are increasing the midpoint of our 2023 delivery guidance. The sequential improvement in our margins and deliveries this year, coupled with the increase in our community count, which Rob will discuss further in his remarks, position us well for 2024. And on behalf of the entire management team, I want to thank our team members and trade partners for their hard work and dedication that made these results possible. I'll now turn the call over to Rob to discuss our operations and land position in more detail.